What is a Sole Trader?
A "sole trader" is often referred to as a "sole proprietor," representing a straightforward and commonly adopted form of business ownership. This business model is prevalent among self-employed individuals, freelancers, and small business owners across various industries.
The hallmark of a sole trader business is individual ownership and control. The person behind the business makes all key decisions regarding operations, management, and finances. This allows for agility and quick decision-making.
The legal and economic aspects of being a sole trader
One fundamental characteristic of being a sole trader is that the business and its owner are legally indistinguishable. Consequently, the individual holds personal liability for all business debts and legal obligations. In case of financial difficulties or legal issues, personal assets like homes and savings can be at risk.
Regarding taxes, sole traders report business income and losses on their personal income tax returns, simplifying the tax process, as business income and personal income are intertwined.
All profits earned by the business accrue directly to the sole trader after covering expenses and taxes. This offers financial independence, enabling the reinvestment of profits into the business or allocation for personal use.
Unlike more complex business structures, sole traders often do not require formal registration with the state. Operating under the owner's legal name is common, although some may choose to use a trade name, also known as a DBA name (Doing Business As).
As a sole trader, it is your responsibility to manage your finances and taxes and to claim the deductions you are eligible for.
IRS has put together a list of forms you might need to fill out.
If you drive as a part of your business, you are eligible for substantial deductions, which a mileage tracking tool like Driversnote can help you stay on top of.
Advantages and Challenges
Being a sole trader offers several advantages, such as simplicity, control, direct profit retention, and potential tax benefits. However, this structure also carries significant challenges, notably unlimited personal liability and potential limitations in accessing resources and business growth opportunities.
Here, you'll find a collection of articles that will help you to navigate the rules for everything from reimbursing employees for their..
See when to expect the new 2024 IRS mileage rate, if we expect it to increase, and how to use the rate according to your employment situation.
Find out if you should charge mileage to customers, what is the best way to do so for your business and how to decide on how much to charge for mileage.